1b Emergence of modern SE Asian economies Overview Comparisons: the region in 1970 and 2008 Big events and their growth implications Growth and development questions map Main development strategies – 1970s 1970: poor, agrarian, undereducated, weak infrastructure, little modern manufacturing, dependent on primary exports Goals: industrializ’n, less import dependence, food security Main development policies: Use natural resource export revenues to finance agricultural and industrial growth  Import-substitution policies (ISI; protection) for industry  Upside: resource abundance, ‘easy’ import substitution (consumer goods, simple manufactures)  Downside: vulnerability to terms of trade shocks, inefficiency of protected “infant” industries Growth outcomes have been diverse… Early Expansion Reagan Recession Post-Plaza Miracle Asian Crisis Recovery & Convergence 1970-82 1983-86 1987-96 1997-1999 2000-08 6.06 7.50 Cambodia Indonesia 4.94 3.50 6.24 -7.71 3.85 Malaysia 5.05 -0.27 6.60 -3.23 3.12 Philippines 2.66 -6.37 1.22 -0.69 2.87 Singapore 6.54 2.27 5.84 0.69 2.47 Thailand 4.15 3.33 8.17 -3.95 3.74 Vietnam 5.35 3.86 6.15 Lao PDR 3.39 3.22 5.01 1.34 1.39 1.66 World 1.47 2.14 Differences between countries and through time: Partly due to common external shocks Partly due to country-specific policies Let’s look at common external shocks… defining events in the global economy First oil price shock (1973-5)  Recycling of “petrodollars” in global markets > cheap credit for developing countries Second oil price shock 1979-80  Global recession; high real interest rates on debt Global commodity price slump early 1980s  Export revenues collapse for resource-dependent economies Debt servicing crises and recessions (1985) Collapse of inward-oriented development strategies Plaza Accord 1985  Recovery in US and world economies ( > boom in global manuf trade) and “hollowing-out” of Japanese economy ( > SE Asian FDI boom) PLAZA ACCORD Boom, bubble and bust Countries that pursued macro stability in 1970s emerged in better shape – less debt burden meant more productive investment These countries were attractive targets for E Asian FDI after 1985 Boom: “E Asian Miracle” (Thailand, Singapore, Malaysia, Indonesia)  Based on rising exports of low-end manufactures  Financed largely by foreign fixed capital investments Bubble: speculative booms in property, building, stocks  Financed by short-term borrowing from foreign banks Bust: loss of export competitiveness, financial crisis (1997-99)  Chinese competition; labor costs  Inability to earn enough to service foreign debts 10 defining events in Asian regional econ ASEAN (1967+)  Regional political grouping, later economic grouping (ASEAN Free Trade Area; ASEAN-China Free Trade Agreement 2010) China’s new “Open Door” policy 1978+  Re-entry of China to global economy  RMB (Chinese currency) devaluation 1994 Dissolution of the Soviet Union 1991  Withdrawal of Soviet economic assistance to Asian allies (Vietnam) after 1986 Asian Financial Crisis 1997-99  “Correction” brings an end to “miracle” years, 1988-96 11 12 Enter the dragon China’s GDP growth about 10%/yr since 1990 Trade growth around 15% per year  Rising share of world exports, esp manufactures  Driven by economic growth and liberalization (WTO membership) China’s entry to world market:  Adds hundreds of millions of workers to the global labor endowment  Creates intense competition for labor-intensive exports  Generates huge demand growth for inputs to these products 13 Homework!!!! Read Malcom Dowling: “Asia’s Economic Miracle: A Historical Perspective”  Notice distinction between NIEs (Singapore, HK, Taiwan, Korea) and SE Asia (Indonesia, Thailand, Malaysia)  What are the four “critical aspects” of Asian economies that make rapid growth possible?  This was written in 1997 Are the same things “critical” to development today? Do you think there are any changes? 14 Dev’t prospects & strategies – 1970s What should be main econ development goals? What dev’t strategies/policies are best? For whom? GROUPS: • President; 1-2 urban industrial representatives; 3-4 rural/farm representatives • BUT each urban rep has 2X votes, AND president can ignore all others if s/he chooses • Discuss, decide, report back (5-10 min) 15 ... the region in 1970 and 2008 Big events and their growth implications Growth and development questions map Main development strategies – 1970s 1970: poor, agrarian, undereducated, weak infrastructure,... inward-oriented development strategies Plaza Accord 1985  Recovery in US and world economies ( > boom in global manuf trade) and “hollowing-out” of Japanese economy ( > SE Asian FDI boom) PLAZA... meant more productive investment These countries were attractive targets for E Asian FDI after 1985 Boom: “E Asian Miracle” (Thailand, Singapore, Malaysia, Indonesia)  Based on rising exports